FBI Takes a Bullet in Banks' $50 Billion Fee War With Retailers

Last month, the FBI posted a recommendation to the general public how to pay for the things consumers buy. The FBI made the suggestion that consumers opt to pay with ‘Chip and PIN’, not having done their homework to understand that the vast majority of credit cards issued with a chip do not have a PIN. The FBI received an education from the banking industry, removed their recommendation and now retailers are claiming an unholy alliance exists between the banking industry and the law enforcement agency. As reported in Bloomberg:

Last month, the nation’s premier law enforcement agency issued a seemingly innocuous fraud alert telling shoppers to use a PIN with new credit cards embedded with computer chips. Though the goal was to promote security, the bureau instead found itself ensnared in a decade-long dispute between banks and retailers, in which about $50 billion in annual fees are at stake.

This one incident has now gotten the attention of Senator Richard Durbin, a champion of the retailers, so stay tuned to see if this creates conversation about a mandate for chip and PIN. In a letter to FBI Director James Comey Senator Durbin asked:

“Is the FBI aware that payment card networks and banks in the United States have an incentive to dissuade consumers and merchants from using PINs?” Durbin wrote. “Is the FBI concerned that this incentive may cause card networks and banks to set security specifications that seek to maximize fee revenue instead of maximizing fraud prevention?”

Comey must respond to Durbin by Nov. 15. This time, at least, the bureau will know that both banks and merchants are ready to pounce on every word.

Overview by Sarah Grotta, Director, Debit Advisory Service at Mercator Advisory Group